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Thursday, February 26, 2009

Apple vs. Palm: Geeks with grudges

The bad blood between Apple (AAPL) and Palm (PALM) that bubbled to the surface last week has a history that long predates Palm's launch of the Pre, a smartphone that flatters Apple more sincerely than any of the other iPhone imitators.

When asked at Apple's earnings call last Wednesday how the iPhone was going to going to stay ahead of competitors nipping at its heels, you could hear the heat in acting CEO Tim Cook's answer.

"We think competition is good. It makes us all better. And we are ready to suit up and go against anyone.

"However," he added, his voice rising, "we will not stand for having our IP [intellectual property] ripped off, and we'll use whatever weapons that we have at our disposal. I don't know that I can be clearer than that." (link)

Palm was quick to respond to what it perceived as a shot across its bow.
"If faced with legal action," a spokesperson told Digital Daily, "we are confident that we have the tools necessary to defend ourselves."

But the bad blood between Palm and Apple goes deeper than a patent dispute, as my colleague Brent Schlender presciently pointed out when the venture capitalists at Elevation Partners made their first big investment in Palm -- a $325 million cash infusion just a few weeks before the iPhone hit the market.

In a column written at the time of the loan, Schlender noted that both the giver -- Elevation partner Fred Anderson -- and the receiver -- Palm executive chairman Jon Rubenstein -- had long, complex relationships with Apple.

Anderson, who was Apple's CFO from 1996 to 2004, before he became a venture capitalist, had just reached a settlement with the SEC over his alleged role in backdating Apple stock options -- including hundreds of millions of dollars worth for Steve Jobs. At the time of his settlement, Schlender reminds us, Anderson "denied any wrongdoing, paid a fine, and issued a vaguely antagonistic statement disputing Jobs’s account of the options backdating. Clearly Anderson felt he had been thrown under the train."

Rubenstein's relationship with Jobs is even older and more complex. It dates back to 1990, when Jobs asked him to run hardware engineering at NeXT. Rubinstein came to Apple with Jobs' return in 1997 and played a key role in developing some of the revitilized company's most profitable products. As Schlender tells it:

"Rubinstein ... who was instrumental in developing the iMac, the PowerBook, the Power Macintosh, and the iPod, retired quietly a little over a year ago, on April Fools Day, 2006 — the 30th birthhday of Apple. Interestingly, about six months before that, he gave a rare interview to the Berliner Zeitungin which he threw water on the idea of converging a cellphone and an iPod media player into a single device — basically what is now the iPhone. “Is there a toaster that also knows how to brew coffee?” he asked. 'There is no such combined device, because it would not make anything better than an individual toaster or coffee machine,' Rubinstein argued. 'It works the same way with the iPod, the digital camera or mobile phone: it is important to have specialized devices.'

"Strange words, considering that Apple’s iPod group was already working on what would become the iPhone. Stranger still, when you look back and see that Apple publicly announced Rubinstein’s upcoming 'retirement' less than three weeks after that interview. I think you can safely surmise that Ruby, who had been with Jobs for more than 15 years at both NeXT and Apple, wasn’t on the same page with his boss." (link)

At the unveiling of the Pre at the Consumer Electronics Show three weeks ago, Rubinstein introduced the device by first talking about how he retreated with his family to Mexico after he left Apple to lick his wounds -- a surprisingly personal way to launch a new cellphone. (You can watch him here in the Palm-supplied video that shows us more of Rubinstein than we ever saw in his years at Apple.)

Once at Palm, it didn't take Rubinstein long to start raiding his former employer for engineering and marketing talent -- including senior vice president for product development Mike Bell (a 16-year Apple veteran), director of software Chris McKillop (of the iPhone and iPod team), and spokesperson Lynn Fox (out of Apple PR).

So did Palm, in fact, rip off Apple's intellectual property? Patent attorneys could be arguing that question for years to come. Meanwhile, Palm partisans have begun laying the groundwork for their defense, leaking to reporters a white paper prepared by Microsoft's Bill Buxton that traces the history of multi-touch back to IBM's Type and N-key Rollover. (link)

Meanwhile, the exuberance with which the tech press initially greeted the Pre (it won Best in Show and rave reviews, for example here and here) is being tempered by the sour reaction of Apple partisans. Perhaps the sourest of the lot is Daniel Eran Dilger's long screed in Roughly Drafted Magazine, in which he repeatedly refers the still-unreleased Pre as a "demo" and compares it to a "bald man's combover." (See The Emperor's New Phone.)

The Pre is scheduled to go on sale in the first half of 2009. A price point has not been announced, although outsiders have speculated that it will be somewhere between $249 and $399. The iPhone retails for $199 (8GB) and $299 (16GB).

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